Sensex falls on worries Greek contagion could spread further

Mumbai: Fears of another global credit crunch triggered by the unspooling Greek crisis rattled the Bombay Stock Exchange (BSE) on Friday. Its benchmark index, Sensex, slumped to a two-month low on Friday after losing 218.42 points, or 1.3%, to close at 16,769.11 points.

The S&P CNX Nifty Index on the National Stock Exchange lost 1.4% to end the day at 5,018.05 points.

The fall echoed, albeit in a lower key, the Dow Jones Industrial Average, which on Thursday dove almost 1,000 points in its biggest intraday fall since 1987, briefly dipping below the 10,000-point mark. It recovered later to close with a 3.46% loss for the day at 10,520 points.

Early on Friday, the US Department of Labor said 290,000 payroll jobs were added in April, the fastest growth in four years.

Though the Thursday downslide was later attributed in part to a technical glitch, market experts say it is testimony to a lack of confidence among investors, who are becoming increasingly averse to risky assets such as equities as Greece and other weak European Union economies stumble under the weight of their debt.

Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services Ltd, said Indian equities cannot stay insulated when the overall global environment is shaky but maintained that they were sound.

“Our markets are doing very well on all fundamentals like corporate earnings, inflation and overall macro environment. Even if things get worse, I don’t see a downside in excess of 5-7%,” he said.

The Sensex has already declined 4.5% this week, its worst weekly performance in at least six months.

On Friday, conglomerate Reliance Industries Ltd, which carries a 13.22% weight on the 30-stock Sensex, rose 2.27% to Rs1,033.85, the most in four weeks, after the Supreme Court ruled in its favour in a three-year dispute over the marketing and pricing of natural gas.

Gaurav Dua, head of research, Sharekhan Ltd, a Mumbai-based brokerage, said if the risk aversion continues, the Nifty could fall to its October 2009 lows.

“Between October and now, the Nifty has traded in a tight range of 4,550 to 5,400 (points). After the fall, we have now come to the mid-point of the range. I expect a global contagion causing further downside leading to those (October) lows,” he said.

Dua, however, was confident the 4,550-level on the Nifty index would not be breached, “unless things get really bad”.

Foreign institutional investors (FIIs) have turned negative in the first week of May, selling shares worth at least Rs3,800 crore net of purchases through Thursday.

On Friday, they net sold shares worth Rs1,308 crore, according to provisional figures from NSE.

FIIs were big buyers of Indian shares, picking up Rs19,928 crore in March and Rs9,361 crore in April. Domestic institutions, on the other hand, have been big buyers, netting Rs654 crore, according to provisional figures available on Friday.

“India should show more resilience given that the genesis of this crisis is in the developed world and domestic institutions will come in to support at lower levels,” he said, adding that even foreign institutions who missed out on the earlier rallies will come when there is a correction.

Hours before the Dow tumbled on Thursday, global ratings agency Moody’s warned that potential contagion of the Greek debt crisis could hit banking systems in some European nations, including the UK, Portugal and Spain.

The statement came a day after the agency placed ratings for Portugal’s government bond under review for a possible downgrade due to weak public finances.

As for another global financial crisis of the nature that followed the collapse of US investment bank Lehman Brothers Holdings Inc., Dua of Sharekhan said the possibility exists.

“But I won’t bet on that,” he added. “I think the world has learnt its lessons from the Lehman collapse and they wouldn’t allow Greece to go down.”